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ONE <br />IMES <br />IME <br />Lars•nAllen <br />CPAs, Consultants & Advisors <br />www.larsonallen.com <br />Honorable Mayor and <br />Members of the City Council <br />City of Lino Lakes, Minnesota <br />In planning and performing our audit of the financial statements of the City of Lino Lakes, Minnesota as <br />of and for the year ended December 31, 2006, in accordance with auditing standards generally <br />accepted in the United States of America, we considered the City's internal control over financial <br />reporting (intemal control) as a basis for designing our auditing procedures for the purpose of <br />expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on <br />the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the <br />effectiveness of the City's intemal control. <br />Our consideration of internal control was for the limited purpose described in the preceding paragraph <br />and would not necessarily identify all deficiencies in intemal control that might be significant deficiencies <br />or material weaknesses. In addition, because of inherent limitations in intemal control, including the <br />possibility of management override of controls, misstatements due to error or fraud may occur and not <br />be detected by such controls. However, as discussed below, we identified one deficiency in intemal <br />control that we consider to be material weaknesses. <br />A new audit standard, Statement on Auditing Standards 112 (SAS 112), Communicating Internal <br />Control Matters Identified in an Audit, is effective this year and states that "a control deficiency exists <br />when the design or operation of a control does not allow management or employees, in the normal <br />course of performing their assigned functions, to prevent or detect misstatements on a timely basis." <br />The standard further states, "a significant deficiency is a control deficiency, or a combination of control <br />deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report <br />financial data reliably in accordance with generally accepted accounting principles such that there is <br />more than a remote likelihood that a misstatement of the entity's financial statements that is more than <br />inconsequential will not be prevented or detected by the entity's intemal control." <br />The new standard (SAS 112) further states that, "a material weakness is a significant deficiency, or a <br />combination of significant deficiencies, that results in more than a remote likelihood that a material <br />misstatement of the financial statements will not be prevented or detected by the entity's internal <br />control." <br />— Material Audit Adjustments - Internal Control over the Financial Reporting Process <br />Management is responsible for establishing and maintaining intemal controls, including monitoring, and <br />for the fair presentation in the financial statements in accordance with U.S. generally accepted <br />accounting principles. <br />Management is also responsible for the accuracy and completeness of all financial records and related <br />information. Their responsibilities include adjusting the financial statements to correct material <br />misstatements. <br />(7) <br />LarsonAllen LLP is a member of Nexia International, a worldwide network of independent accounting and consulting firms. <br />INTERNATIONAL <br />